Shazrts7970 Shazrts7970
  • 01-09-2020
  • Business
contestada

Calculate the AT- WACC with a 60% debt and 40% equity financing structure.

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Parrain
Parrain Parrain
  • 03-09-2020

Answer: 9.9%

Explanation:

The Weighted Average Cost of Capital (WACC) represents the cost of financing the business through debt and capital.

It is calculated as;

= (Weight of stock * cost of stock) + ( Weight of debt * after-tax cost of debt)

After tax cost of debt;

= debt interest *  ( 1 - tax rate)

= 10% * ( 1 - 35%)

= 6.5%

WACC = (40% * 15%) + ( 60% * 6.5%)

= 9.9%

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